The decision of a 17-member bank consortium, led by State Bank of India (SBI), to reject an offer by Kingfisher chief Vijay Mallya to pay Rs 4,000 crore to banks and insist for the liquor baron to appear in person for further negotiations shows that India’s state-run banks have finally learned the lesson in the hard way. They have begun to show the guts to take on crony promoters.

Mallya’s proposal to banks exhibited the characteristics of a generous gift from an emperor to his subjects, rather than from loan defaulter to the bank. When Mallya is due to pay Rs 9,000 crore to a clutch of banks, the liquor-baron offered Rs 4,000 crore and additional Rs 2,000 crore on the settlement of a legal case after negotiating through a video-conference from the suburbs of London. This is not how a bank in India typically deal with a defaulter who has failed to pay back his loan for more than 4-years.

Vijay Mallya and Arundhati Bhattacharya

Also, Mallya deserved no special privilege. He is far from an honest borrower, who is facing a temporary financial difficulty. After all, the man is tagged as a wilful defaulter (someone who wouldn’t pay back to banks even if he has the capacity to do so) by two banks including SBI after the lenders conducted audits and found out cases of fund diversion and financial irregularities by Mallya.

The Kingfisher-Mallya case is unique from other banker-defaulter dealings since a host of investigative agencies, such as Enforcement Directorate, Income Tax authorities and the Central Bureau of Investigation for charges including financial fraud.

Genuine financial difficulties and industry issues form only a minor part of the overall reasons that finally resulted in the default of Kingfisher loan to banks. Banks have identified diversion of funds by the flamboyant industrialist to other activities that has nothing to do with originally intended use of the money borrowed for Kingfisher airlines.

Besides, Mallya has never even once shown the willingness to repay money to banks in these for years. Instead, he took the banking system for a ride using the power of his legal team and his connections in the political, bureaucratic circles. When former Kingfisher employees were crying for their pending pay and many Kingfisher shareholders lost a fortune in market, Mallya was flaunting his wealth throwing lavish parties and in F1 rallies.

That isn’t the way an honest man, in financial difficulty, behaves in such situation, but, exhibited defiance and rude attitude that the ‘rich and powerful’ can take the system for granted. The same attitude provoked the media to chase Mallya—the same person who once claimed “he could buy any journalist In India”.

There was and there is no reason for banks to agree to settle for less than half of the amount Mallya owes to them, when through legal recovery proceedings, the lenders can recover the whole principal and interest amount (which is rising every passing week).

Mallya still has fortune.

His shareholding in companies is worth over Rs 7000 crore. Mallya has palatial residences and premium real estate properties across world. If Subarata Roy of Sahara can show the intent to sell his assets to come out of jail, there is no reason why Mallya cannot do the same for not going to jail.

More critically, Mallya is also fighting a big trust deficit with the lenders, shareholders, investigators and the courts. There was no reason for banks to trust his words. He is agreeing to repay after he was cornered from all sides and there is no option left even to return to his home country. The industrialist has everything at stake—his family legacy, his business empire and even his personal freedom in the country of his birth.

More than any of these factors, the biggest reason why banks shouldn’t settle for anything less than the full amount and legal action against Mallya is that the money at stake is public money. Banks collect deposits raised from public and lend the funds. Especially, in the Vijay Mallya case, it’s state-run banks that have been taken for the ride by Mallya.

Each hole Mallya punches on the balance sheets of these banks has to be filled by the general taxpayer (government being the owner of these banks infuse capital in these banks every year).The taxpayer shouldn’t be forced to bail out cronies. There are several other Mallyas out there who is watching the Kingfisher case and there is a stock of Rs 400,000 crore bad loans threatening the banking sector (most of which are from corporates).

In the place of Mallya, had it been a common man, who defaulted on his home or auto loan, an army of bank staff would have knocked at his door on the 91st day, to recover the money. There is no reason why Mallya et all should be treated differently.